Investment in Cash

When we are talking about investment, cash is not only the real paper (or metal) money that are held in the wallet or under the bed. Cash in investing process may have many forms: saving accounts, deposits, T-Bills, money market funds or any other very short term bonds with low risk ratio. In practice, if some mutual fund invests in bills, deposit certificates and other money market instruments that fund can be also described as cash investment.

Cash is an important investment asset class, and sometimes it may play a significant role in the investment portfolio. This is due to the fact that cash can be the only investing instrument that can protect investments from sudden contraction during more significant and fast financial crisis. Many investors may think that bonds is safe investment too, but if those bonds are long term and low credit rating then during large market fluctuations such bonds can quickly lose major part of a value in the market when serious crisis will appear.

Still cash is not such a perfect investment even from far. A major disadvantage of cash instruments is that the return from cash investments over long-term usually is minimal. And in fact, the interests received from cash instruments may even fail to beat the inflation, so the return in real terms will be negative.

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